STRENGTHS

Potential for economic diversification with the opening of free trade zones

WEAKNESSES

Highly dependent on oil and China

Lack of infrastructure; insufficient progress in poverty reduction

Unsupportive business environment: weak governance and corruption

Lack of transparency on debt levels; uncertainty about interest payments

Risk assessment

Recovery strengthens thanks to the oil sector

After two years of recession, the Congolese economy returned to growth in 2018. Higher oil prices, coupled with a strong increase in production, supported a rebound in oil GDP. Meanwhile, the non-oil sector continued to weigh on growth, limiting recovery. It was severely affected by the public finance crisis that followed the 2014/15 oil shock. Growth is set to accelerate significantly in 2019, driven by a still buoyant oil GDP. This latter is benefiting from oil prices that should remain relatively stable, and a planned increase of oil and gas production, driven by the ramp-up of the Nene Marine (operated by Eni) and Moho (Total) offshore fields, which would make the Republic of the Congo the third-largest oil producer in sub-Saharan Africa. In comparison, non-oil activity is showing signs of recovery and could contribute slightly to growth, after having weighed it down in recent years. Investment should also thrive, especially in public infrastructure. As the government is launching a new call for tenders for deep-sea exploration licences, the improved security situation in the Pool region and the agreements with the International Monetary Fund (IMF) and China should encourage foreign investors to return in 2019, even though the business environment remains challenging. However, fiscal consolidation efforts will likely continue to affect consumption, which remains weak. Inflation should be relatively stable in 2019, staying below the 3% target set by the Bank of Central African States.

Debt remains heavy despite restructuring and IMF support

The rise in oil prices led to a marked improvement in public finances in 2018, allowing the government to post a budget surplus, which will likely be maintained in 2019, despite the increased public spending provided for by the Finance Act. Even so, the country's financial situation remains critical. Between 2014 and 2016, the Congo – which had embarked on a major infrastructure investment programme – maintained a high level of public spending, despite the sharp drop in its revenues. The subsequent accumulation of deficits led to a significant increase in the debt ratio, which was already very high. At present, public debt is essentially external. After a temporary default on Eurobonds in July 2017, in September of the same year the credit rating agency Standard & Poor’s revealed the existence of hidden debts linked to significant arrears owed to the Swiss trading companies Glencore and Trafigura. This finding led to the suspension of discussions with the IMF, which had made its assistance conditional on an improvement in public accounts and negotiations between the Congo and its main creditors in order to restore debt sustainability. In May 2019, the country reached an agreement to reschedule its debt with China, the largest creditor. On July 11, the IMF finally validated an Extended Credit Facility program of USD 448.6 million over 3 years. This assistance is an important contribution towards restoring the sustainability of public finances and external accounts. Nevertheless, financial situation remains worrying, as does debt service, which will represent around 15% of GDP in 2019. In addition, the country still has to negotiate with Glencore and Trafigura. The Congolese government is also involved in a dispute with Commisimpex, a construction company that is claiming USD 1.2 billion (15% of GDP) for unpaid infrastructure work. Although validated by several courts, this debt is not endorsed by the IMF.

Increased oil exports, which represent approximately 75% of total exports, have generated a current account surplus that should continue in 2019. However, the country remains vulnerable to a downturn in the oil market.

Tensions ease in the Pool region

The peace agreement signed between Pastor Ntumi’s Ninja Nsiloulou militiamen and the Congolese government in December 2017 defused the escalation of violence in the Pool region south of Brazzaville. The rebels had taken up arms in April 2016 to challenge the re-election of President Denis Sassou Nguesso. Clashes between armed militias and Congolese forces led to the closure of the railway link between Brazzaville and Pointe Noire in November 2016, disrupting part of the country's economy. Although the peace agreement appears to be sustainable and the disarmament of militias continues, the situation remains precarious, with 138,000 people living in difficult humanitarian conditions. Despite the challenge from the Pool region, President Sassou Nguesso, who has been in power since 1997, emerged stronger from the 2016 presidential and July 2017 legislative elections. His Congolese Labour Party continues to hold a majority in the National Assembly, while the opposition is almost non-existent. The financial crisis, which has resulted in significant delays in paying civil servant wages, continues to fuel a very tense social climate.